December 2017

Author: Zeno Winkels UIA Expert

The FED Project Journal N°1 Project led by the City of Gothenburg

The FED project

With this project, the city of Gothenburg aims to develop, demonstrate and replicate a novel district level energy system, integrating electric power, as well as heating and cooling. This solution embraces and enhances the use of technologies such as PVs, heat-pumps and wind into a larger system. To overcome the main challenges, the proposed solution contains advancements in system development and operation, business logistics, legal framework as well as stakeholders’ acceptance.

The FED solutions consists of three cornerstones: FED demonstrator area – The selected demonstration is located at a campus with about 15 000 end-users. It has a well-balanced set of property owners, energy infrastructure, and users, including prosumers as well as buildings with different needs and usage profiles. The area is exempted from the law of concession for electricity distribution, providing the opportunity to test and validate a local energy market. The prerequisites to optimize the use of primary and secondary energy using intermediate storage are well developed, as they are for generation, storage and distribution.

FED System solution – Our solution will optimise the use of low-grade energy to replace primary energy. Adding fossil-free energy sources while optimising different buildings usage profiles; one building’s energy needs will be balanced with the surplus of another. Intermediate storage, fundamental to be a success, consists of heating/cooling storage in the building’s structure, accumulation tanks or geothermal heat pumps, and batteries for electricity. An ICT service will support future volatile energy markets.

FED Business solution – Create new sustainable markets. The success of FED depends on cooperation and energy exchange between several stakeholders. To make it happen, a local energy market creating business value for each stakeholder will be developed.

Partnership:

 Göteborg Stad  Johanneberg Science Park AB - Public/Private Company  Göteborg Energi AB - Public Company  Business Region Göteborg AB - Public Company  Chalmersfastigheter AB - Private Company  Akademiska hus AB - Private Company  Chalmers - Research Centre  RISE  Ericsson AB - Private Company

Table of Contents

1 Executive Summary ...... 1

2 Smart grids in Europe ...... 2

3 Project goals FED ...... 5

4 The FED partnership ...... 6

5 The FED solution ...... 11

6 Goals and process ...... 12

7 Interview RISE ...... 14

8 Challenges ...... 17

9 Next steps ...... 19

1 Executive Summary Dear reader,

As I travelled to Gothenburg to study the FED project I studied the quote from its mayor Ann- Sofie Hermansson, once more:

“The FED project confirms Gothenburg as a frontrunner in developing the energy solutions of a fossil-free society. The idea is to reduce energy consumption by establishing a local market place for electricity, heating and cooling. Hopefully, this model will prove capable of speeding up the energy transition across Europe.”

I am really happy that I get to fully grasp what it takes to do that and accompany the project in the following years. I will be there when the partners will try to: . reduce external energy input . reduce peak loads . establish a market place

The results of these type of projects come with good design and preparation and it is in this phase of the project that I visit them for the first time. As expected, the project lead walks me through the area and we prepare a partner meeting together. It is visible that the partners have been cooperating for many years and that they are well prepared for the challenge they have set themselves.

The project is now a couple of months after the final investment decisions and the Academics from Chalmers have shown their models and results. This report does not focus on these two deliverables, but kicks off with a look at the market design RISE has made to make trade in heat, electricity and services on one market at Johanneberg in Gothenburg, possible in the first place.

Zeno Winkels

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2 Smart grids in Europe Policy context Improving energy efficiency is a priority of the sustainable heating and cooling systems, which EU's Energy Union strategy. Energy efficiency has are well-functioning and result in a high-quality, been identified as a key element for fostering efficient and low-carbon heat and cold supply to European competitiveness, and for ensuring a its buildings and industries. secure energy supply and the reduction of greenhouse gas emissions. This has been translated into the 2030 objectives of the Energy Union, notably reducing Europe's energy use by at least 27 % compared to the baseline, and a 27 % share of renewable energy consumption.

Since heating and cooling represent about 50 % of the final energy consumed in the EU, potential savings in this area have to be identified and promoted. Indeed, 84 % of heating and cooling in the EU is still generated from fossil fuels while only 16 % is generated from renewable energy. In order to fulfil the EU’s climate and energy goals, the heating and cooling sector must sharply reduce its energy consumption and cut its Fig. 1: District Heating Systems in Europe. Halmstad & use of fossil fuels. Aalborg Universities 2013.

In February 2016, the European Commission National proposed a strategy to make heating and cooling The first Swedish district heating system was in the EU more efficient and sustainable. This introduced in Karlstad in 1948, when a thermal strategy highlights the capacity of district energy power station was converted to a combined heat systems to integrate the increasing share of and power (CHP) plant and heat was provided to renewable electricity generation (e.g. through an industrial facility. Nine major municipalities the use of thermoelectric equipment) and to introduced district heating systems during the replace fossil fuels with waste heat and cold from 1950s. Nowadays, all major cities and towns in industrial processes, waste-to-energy and have district heating systems. Current renewable energy sources such as geothermal, national statistics lists about 500 systems, also biomass, solar thermal. including small district heating systems in small towns and villages. Efficient district energy systems can play a key role in the energy transition towards a low- Customers buy district heat from the heat carbon economy, acting as a backbone towards distribution systems in competition to other heat efficient local energy systems. Some European supply, since mandatory connections have no cities have already recognized the benefits of legislative support. Historically, district heat has these systems and developed efficient and mainly substituted fuel oil boilers as illustrated in

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Fig. 2. This figure reveals also that the increase of number of projects and the overall level and pace market shares has been very steady during the of investment, but private investment is clearly fifty years presented. District heating is currently the most important source of financing of smart the market leader with a market share of about grid projects. European and national funding 55% during 2014 for all heat supply to buildings. however, play an important role in leveraging private finance and incentivizing investment. Distribution system operators (DSOs) are the stakeholders with the highest investment, but non-traditional actors such as public institutions and other emerging stakeholders are steadily increasing their investment in the field.

The domains with highest investment are smart network management, demand-side management and integration of distributed generation and storage, together accounting for around 80 % of the total investment. Many Fig. 2: Market shares for heat supply to residential and service sector buildings in Sweden between 1960 and projects however address several domains at the 2014 with respect to heat delivered from various heat same time to investigate and test the systemic sources. Sven Werner. integration of different solutions.

During the last two decades, the use of individual The distribution of these projects is shown in the heat pumps has been expanding and is now the next figure although one must keep in mind that main competitor to district heating with a market these projects are around electricity rather than share of almost one quarter in 2014. heat networks, let alone the combination, as demonstrated in the FED project in Gothenburg. Smart Grids, however, are usually synonymized for electrical grids. In fact, when asked for a definition on Smart Grids, Google returns more than 4 Mln. hits of which the first one sums it up nicely: ‘an electricity supply network that uses digital communications technology to detect and react to local changes in usage’. Nicely, but not perfect as heating grids can be smart too.

The EU’s JRC report on Electrical Smart Grids includes a total of 950 smart grid projects, Fig. 3: JRC Report, 2017. launched from 2002 up until today, amounting to €5 billion investment. There are strong differences between Member States in the

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Fig. 4: JRC Report, 2017.

The JRC report also concludes that besides Several smart district heating networks have strengthening the national export potential, a been already implemented in Sweden and favourable national policy and regulatory Denmark, predominantly in residential sector. In framework is important to make the country the mid-term they can be expected to spread attractive for foreign smart grid investment. In across Europe’s residential sector. Existing particular, the adoption of smart grid roadmaps systems are also being upgraded to smart status. is a clear sign that smart grids are high on the national agenda, thus attracting foreign investors Future developments include the further to seek partnerships with local stakeholders to optimisation of control systems, improved supply enter the national market. So far only a few management to integrate renewable and waste Member States have adopted roadmaps for the heat, new or improved energy storage swift development of smart grids (e.g. Denmark, technologies and the greater adoption of , Ireland, , , Slovenia, trigeneration (combined generation of Sweden and the ) and one can electricity, heating and cooling). already notice a clear positive correlation with the number of smart grid projects in these The Heat Roadmap Europe 4 project is mapping countries. and modelling the heating and energy systems of the 14 largest users of heat in the EU, to develop It is the EU’s SETIS website1 that goes into details new policies at local, national, and EU level to of smart heating grids and explains: Smart ensure the uptake of efficient, sustainable and district heating and cooling grids manage the affordable heating and cooling solutions. HRE4 supply side through the intelligent use of heat plans to cover the 14 countries in the EU ranked storage and absorption refrigerators, with largest by heat demand. appropriate control systems. Such systems balance the heating or cooling available – taking With these 14 countries, it will cover 85-90% of into account the availability of stored energy, the heating and cooling demands in Europe; this waste heat from industry, heat from CHP plants means its results are hugely relevant for the EU (which varies according to electricity demand), level. See www.heatroadmap.eu. and solar heat – with the current demand.

1 https://setis.ec.europa.eu/.

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3 Project goals FED FED aims to develop, demonstrate and replicate infrastructure to the energy market trading a novel district level energy system, integrating system will be installed, and a showroom will be electric power, as well as heating and cooling. built. This solution embraces and enhances the use of technologies such as PVs, heat-pumps and wind The total amount of investments in control into larger system. The solution will drastically systems has been decided but the actual tender reduce peak loads and the use of fossil primary has not taken place yet. The investments will energy to such an extent that Gothenburg has the enable functions needed to meet the system possibility to be a no-carbon City if deployed on a requirements of controlling the integrated greater scale. energy systems, and to enable the local energy market trading system. This includes for example To overcome the main challenges, the solution a metering systems enabling real-time measuring contains advancements in system development (electricity and district heating/cooling), a control and operation, business logistics, legal system, for the PVs and connected battery framework as well as Stakeholders’ acceptance. storages as well as the CHP-turbine, and So the FED solutions consists of three interfaces/applications to connect the local cornerstones: electric-, district heating- and cooling system to the local energy market trading system. 1) FED demonstrator area – The selected demonstration is located at a 2) FED System solution campus with about 15 000 end-users. It has a The solution will optimize the use of low-grade well-balanced set of property owners, energy energy to replace primary energy. Adding fossil- infrastructure, and users, including prosumers as free energy sources while optimising different well as buildings with different needs and usage buildings usage profiles; one building’s energy profiles. The area is exempted from the law of needs will be balanced with the surplus of concession for electricity distribution, providing another. Intermediate storage, fundamental to the opportunity to test and validate a local be success, consists of heating/cooling storage in energy market. The prerequisites to optimize the the building’s structure, accumulation tanks or use of primary and secondary energy using geothermal heat pumps, and batteries for intermediate storage are well developed, as they electricity. An ICT service will support future are for generation, storage and distribution. volatile energy markets.

Hardware investments include additional infra A web-/cloud-based local market energy trading structure, adaptation and reconstruction of system will be developed, deployed and put in district heating and cooling systems in the test operation. The total investment has also been area (e.g. new storage capacity), and agreed, but not bought yet. The system will development of the electric system (e.g. enable the partners to trade electricity- and increased non-fossil electricity generation), PVs district heating/cooling in the area. and a bio-fuelled CHP-turbine, and battery storage capacity. Furthermore hardware to Although the fundamental energy systems and connect electricity/heating- and cooling system structures needed in order to build a FED system

5 are already in place at the university test area, functional reasons and for innovation reasons, additional investments are required to make the since the market is early-phase and the potential physical structures meet and become able to large. exchange energy flows. Increased capacity of fossil free energy generation is another crucial 3) FED Business solution component in the test area to meet FED Create new sustainable markets. The success of objectives. From an innovation perspective it FED depends on cooperation and energy represents an expected increase of prosumers. exchange between several stakeholders. To When it becomes good business for a real estate make it happen, a local energy market creating owner to self-generate part of the energy needed business value for each will be developed. instead of buying from the grid, the business interest for matching temporary surplus/demand To make the FED hardware useful and with other stakeholders is likely to grow. synchronised, development of control functionality is required and motivates Energy storage capacity is another key. Ability to investments in corresponding control systems. save energy surplus from one time to another The local market place is the revolutionary increases the chance of making use, and hence enabler of the FED system and makes it possible business, of temporary fluctuations. Investment for prosumers to create business with the in several energy storage technologies working neighbours, which motivates investments in a on different time-scales are motivated for web/cloud-based trading system. 4 The FED partnership Intro As in all UIA projects the city is the first partner 580,000 in the urban area and about 1 million and the official leader of the project. They are the inhabitants in the metropolitan area. owner and Urban Authority and carry the project. Sweden has a great legacy and history in terms of A great deal of environmentally beneficial work is environmental and social sustainability and taking place in Gothenburg although it is evident Gothenburg is a living example of sustainable that more powerful initiatives are required if it is urban development. The city is among the world to achieve all its environmental objectives. That leaders in sustainable construction, waste ambition is to contribute to a sustainable society management and re-usable energy, and at the and not pass on environmental problems to cutting edge of environmental certification of future generations. To achieve this, Gothenburg hotels and events. In autumn 2013 Gothenburg also became the first city in the world to issue a produced the first Environmental Program for green bond for investments that benefit the the City of Gothenburg, a common starting point environment and climate. for the future. The Environmental Program includes an action plan, complete with actions Gothenburg, is the second-largest city in Sweden that all City of Gothenburg administrations and and the fifth-largest in the Nordic countries. It is companies are now set to implement in order to situated by Kattegat, on the west coast of successfully realise the 12 environmental Sweden, and has a population of approximately objectives.

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"In the FED project, Gothenburg City is University of Technology at Campus Johanneberg presenting and testing new solutions that will in Gothenburg, Sweden. lead to a fossil-free society. FED, the Fossil-free Energy Districts, is an innovative pilot project at The organisation is owned by its founders the the Chalmers University of Technology's campus City of Gothenburg via BRG and the Chalmers area, Johanneberg, which will last for three University of Technology Foundation together years, where a holistic approach to energy with AB Volvo, Bengt Dahlgren Göteborg AB, systems and the environment will be in focus. Förvaltnings AB Framtiden, Göteborg Energi, Several organizations and companies in the city HSB, MölnDala Fastighets AB, Peab Sverige AB, will together and in an integrated way create a Riksbyggen, Skanska AB, Tyréns AB,Wallenstam local energy system market and trading venue, AB and White arkitekter AB. to reduce energy needs and cut energy bumps. With the FED project, Göteborg City continues to Johanneberg Science Park supports companies be at the forefront of a sustainable society". seeking to boost their competitiveness and growth potential through innovation projects Eva Hessman, CEO City of Gothenburg. together with other companies, universities and institutes. Its role is to broker, formulate and Gothenburg is also home to many students, as sometimes run projects, but more often involves the city includes the University of Gothenburg training and coaching companies to lead and Chalmers University of Technology. Key- collaborative projects themselves. They can act companies are Volvo, SKF and Astra Zeneca. as an intermediary between networks, contacts and skills. Johanneberg Science Park was established in December 2009 by the Chalmers University of Johanneberg Science Park is one of 80 innovation Technology Foundation and the City of environments throughout Sweden – of which 6 Gothenburg together to create better conditions here in the region – which together comprise for regional sustainable growth, based on the more than 5,000 companies with around 72,000 activities currently conducted within Chalmers employees.

Fig. 5: Picture from Johanneberg Science Park.

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Fig. 6: Demonstrator area Johanneberg Science Parc.

"Johanneberg Science Park is used to lead nationally and internationally, and for creating projects as the Fossil-free Energy Districts. As and collaborating with international networks. being co-owned by Chalmers University of Technology, the City of Gothenburg and BRG’s competence for replication and industry, we have a natural role as the central dissemination will be of great value for the FED part of the project. As we are nine strong project. BRG has collaborated with all the other partners we hope to extend the best from each FED partners in different Smart Cities project and and every partner to fulfill our goals for this activities. innovative and important project towards a fossil-free world". “Innovation is key to sustainable business and our expectation is that the outcome can both be Iréne Svensson, Project Coordinator new services, business models and international Johanneberg Science Park. opportunities for outbound and inbound businesses. Showcasing the test bed is a great Göteborg Energi is one of the leading partners way to market Gothenburg, Chalmers and our and a provider of Energy supply both to buy and industry.” sell over the grid. Both electric grid and district heating and cooling. Göteborg Energi will be Lars Bern, Area Manager Innovation involved in operating the economic control room and therefore an important part of setting up the Chalmersfastigheter (CF) is one of the two main trade criteria, as well as the R&D department real estate companies on Chalmers Campus. CF with Patrik Arvsell; project leader and part of the together with Akademiska Hus (AH) has the R&D department. responsibility for energy supply to the entire Campus. CF is working closely with the City of Business Region Göteborg (BRG) has been Gothenburg, as well as with all other partners in involved in the design phase from the start due the FED project, in different energy efficient to their long experience of promoting business projects. Involvement in the implementation development in the City, for marketing activities phase Chalmersfastigheter (CF) is one of two

8 main real estate companies on Chalmers organisation of Akademiska Hus is running the Campus. CF together with Akademiska Hus (AH) local district system on a daily basis in symbiosis has the responsibility for energy supply to the scientists from Chalmers university. entire Campus. CF and AH plan to develop the energy networks (heating, cooling and electricity) “The opportunity to retain heat in our building on the Campus. and use the inertia at the economically best moment can be of value not only as a proof-of- Akademiska Hus (AH) has a long and solid concept in this project since we have similar understanding regarding all matters in the conditions on 15-20 locations around Sweden. ’ operative energy questions within the local grid. Peter Karlsson, Head of Innovation AH has also knowledge regarding all technical ‘The extended cooperation with tenants and requirements of the buildings within the area as other partners, the inclusion of technical well as the specific supply abilities. AH internal systems and know-how in our rental model and personnel is also, together with Chalmers the need to collaborate to solve tomorrows university, responsible for the daily operation of energy challenges are clear reasons for us to the “Kraftcentralen”, a local district heating, fully embrace this project.” cooling plant and electric grid for high voltage system for Campus Chalmers. The regional Per Loveryd, Energy engineer

Fig. 7: Project lead Irene Svensson overlooking the location were Akademiska Hus will invest in a new CHP and buffer storage. The wall is ready for dissemination material!

The role of Chalmers is to ensure that state of art EPE will conduct measurement and evaluation of technologies are implemented and that the the technical performance of the micro grid. micro grid can be used for future research purposes. Division of Electric Power Engineering The role of RISE is to ensure the relevance of the (EPE), Department of Energy and Environment project for stakeholders, including industry and and Division of Building Technology (BT), authorities. RISE will contribute to the Department of Civil and Environmental development and specification of ICT systems Engineering will be involved. Additionally BT and and electrical power components, with

9 measurements, and with research on market The company offers services, software and designs and business models. Micro grids, infrastructure in information and intelligent energy systems and energy systems communications technology (ICT) for integration are foreseen to play a central role in telecommunications operators, traditional a sustainable future energy system. As an telecommunications and Internet Protocol (IP) institute, RISE has an interest and a responsibility networking equipment, mobile and fixed to contribute to this development and to broadband, operations and business support facilitate the introduction of technologies and services, cable television, IPTV, video systems, businesses to various stakeholders. An important and an extensive services operation. Ericsson had aspect of this is pilots and demonstrations. 35% market share in the 2G/3G/4G mobile network infrastructure market in 2012. ER have RISE Measurement Technology has extensive excellence experience e.g. in transforming knowledge on electrical power, sensors and ICT, energy for distribution and have been and energy markets. The program Intelligent participating in several EU projects. Locally ER Energy Systems at RISE includes R&D projects in have participated in the Electricity project high voltage technologies, grids and systems, and providing the Service Enablement Platform demand-side and services. These projects relate collected data from the electrical Buses and strongly to the contents in this project. made them available to App developers. ER has plan for providing Low Power Radio wireless Ericsson is a multinational networking and access network to new sensors needed to enable telecommunications equipment and services the microgrid market place and the IOT platform company headquartered in Stockholm, Sweden. and related services for the marketplace.

Fig. 8: RISE.

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5 The FED solution We know the energy system in general and the Altogether, the factors above points towards a electric power system in particular, are demand for, and development of, local energy undergoing significant changes, including systems and markets. The aim of the FED market integration of large amount of renewable design is to facilitate a more efficient use of local energy sources on all system levels, new resources and the provision of system services technologies on the demand side e.g. electric targeting distribution system operators. This is vehicles and heat pumps, and emerging performed by development of a local market technologies for energy storage and flexibility. facilitating local stakeholder engagement This creates a new market environment, shifting through adequate economic incentives and low the focus from the traditional perspective on thresholds to enter the local market. large-scale facilities on transmission level to a local context and demand oriented perspective. The focus of the work has been on the economic principles under which the market is organised RISE, 2017 and operates. The following lies within the scope of it: The foreseen establishment of photovoltaics and solar panels, electric vehicles and local storages . Market structure and organization. will increase the demand for local exchange of . Roles and responsibilities. energy and a more active market position of . Market clearing and pricing. distribution system operators. Another factor emphasizing the local and regional perspective is Due to the different characteristics of an energy the potential synergies of the integration of exchange and provisions of system services, the energy carriers such as electricity and district FED Market Place includes an Energy Market heating for e.g. balancing purposes. (FED-EM) and a System Service Market (FED-

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Fig. 9: RISE.

SSM). The design of these markets addresses physical assets such as buildings, storages or local interest of local stakeholders as well as the production. Agents are also defined linking the alignment with external markets and systems. external market with the local market through retailers, flexibility suppliers, etc. The agents The commodity traded on FED-EM constitutes of have the possibility to submit bids on different energy quantities during trading periods, while complexity levels according to their preferences FED-SSM is tailored for services targeting specific and possibilities. The role of the FED Market technical aspects of the distribution systems of Place is to clear the market and to facilitate and the considered energy carriers. An important monitor the resulting transactions. contribution of the FED market is the integration of different energy carriers, which are considered “Some of the FED strikes me as a natural follow simultaneously. up to parts of the work that has been done in the Horizon 2020 project2 named Celsius” The trading on the FED market is based upon bids submitted by software agents representing Zeno Winkels, Expert UIA 6 Goals and process The FED market concerns multiple energy District heating is a more inert energy carrier carriers, e.g. electricity and heating. The than electricity and therefore involves a different characteristics of the electric power market and balancing process. While electricity is a the district heating markets are however commodity that can be traded cross-border via remarkably different. Electricity must be extensive grids, heat is a generally a locally produced and consumed at the same instant and traded product, transported via networks that the electricity market must therefore be carefully are at most regional. The district heating market balanced on different time scales. consists of many small and isolated local markets

2 http://celsiuscity.eu/.

12 with little or no trade between different to distribution system owners and networks. system operators tailored to the demands of different energy carrier The FED project includes three specified energy systems. related goals for the demonstration site according to the following: These two markets share a large part of the ICT infrastructure, but can be run separately from 1. Local energy production should be 100% fossil each other concerning clearing and settlement. free. Hence, they are not included in each other 2. 80% less fossil energy peaks exported (i.e. clearing or coordination functionalities. energy peaks from the local system causing Depending on the application of the FED Market external use of fossil energy). Place, the need for an implementation and 3. 30% less energy imported from the overlying application of FED-EM and FED-SSM may differ. system (as an effect of increased internal use of Thus in order to further promote replicability of recycled energy, efficiency, and local the developed solutions, FED-EM and FED-SSM generation). are designed to work independently from each other. The development of the FED Market Place should be viewed as one of the tools to achieve the The FED market has been decided to take the fulfilment of these goals. This means that the functionality of existing energy market places to market should be designed so that local actors the next step by including flexibility in terms of and market players are incentivised to 1. invest in shift or loads in time or switching between local renewable production; 2. reduce peaks in energy carriers explicitly in the energy market consumption; and 3. increase the efficiency of clearing process. The different needs and their assets through investments and/or more characteristics of local exchange of energy and efficient operations. provisions of system services lead to the distinction and division of the FED Market Place The FED Market Place is therefore divided into to include an energy market (FED-EM) and a two different markets: system service market (FED-SSM). These are operated under totally different principles, . FED Energy Market (FED-EM), facilitating where FED-EM concerns trading in discrete time the coordination and matching of energy using trading periods and applies an integrated demand and supply over time. perspective on different energy carriers, while . FED System Service Market (FED-SSM), FED-SSM is tailored to specific energy carrier facilitating provisions of system services system needs and is operated in continuous time.

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7 Interview RISE The fika is a concept in Swedish culture with the basic meaning "to have coffee", often accompanied with pastries, cookies or pie. I was aiming for a fika over the deliverable on the report on the marketplace by RISE in the project, as I had some questions. Due to time restrictions this particular fika never happened. But I am glad that Johan Söderbom, Maria Thomtén and Magnus Brolin: Magnus Brolin found time to answer my The overall idea of having a common market for questions later. heating, cooling and electricity is to exploit any synergies that can appear with a cooperation of Did I understand your institute changed its multiple energy carrier systems. Such as the name? Why? SP was such a household name? flexibility of using either district heating or a heat pump for heating purposes. So, when concerning the energy a coordination approach makes sense. However, when it comes to system services, these must be tailored to the specific technical needs for each energy system since these are very different from each other. This is also one of the reasons of having two different market places; one for exchange of energy and one for system services. Also, system services Johan Söderbom: often requires a much shorter response times to Three of the large research institutes in Sweden; be effective; the energy market is operated on an SP, Swedish ICT and Innventia, were merged into hourly basis, and this is not sufficient for RISE Research Institutes of Sweden. The new supplements of system services. The different constellation is a strong and competent natures of the needs for energy exchange and innovation partner, well suited to address the supplements of system services therefore led to complex challenges of today’s society. RISE is the decision on having two separate markets. now an organisation of about 2200 highly skilled employees and having experimental facilities in Johan: about 60 different testbeds. Another aspect of creating a common market place for a local energy district is to lower the When I started to read about the market design threshold for new actors to enter a market with I was expecting a market for electricity and a assets that provide flexibility. This will hopefully market for heating. You have designed a double attract more players to make assets available market, one for commodities and one for that otherwise would not be accessible for services. Why was that necessary? overall system balancing.

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Did you find many examples of different energy Do you think that software can eventually commodities traded in one system? optimise the system over costs or should the actors also have sustainability goals in their Magnus: buying strategy? This is mainly related to the different energy carriers in the system. Concerning the energy Magnus: market, this is specified through different Again, it is up to the owners of the agents to demand and supply bids, which are defined for decide upon. There can be either purely the different energy carriers considered (mainly economic factors, but also environmental factors district heating and electricity). These are such as CO2 emissions. The market software however still expressed in terms of energy. itself does not impose any restriction on this. Since energy market prices typically are I understand the inertia of buildings can now be correlated to the use of fossil fuels, the CO2 used to find optimum moments for heating or emissions are considered also when considering selling. Can an electric car fleet also work as a purely economic factors, but by including a battery for the PV system? specific CO2 signal this could be even further emphasized.

What happens with VAT when one building sells it surplus heat?

Johan: As in all new endeavours there will be old structures that one come into conflict with, the taxation of energy is one. The FED-project is an Maria Thomtén: excellent opportunity to get an understanding on Yes. The Vehicle-to-Grid idea has been around for the impact of this. There are parts of the project some time but has not yet had a major that are looking into acceptance and barriers for breakthrough. This would imply great introduction of local energy markets. opportunities to store excess power when demand is low and feed it back to the grid when What are the main legislative challenges when demand is high. the system would roll out over a district with many different owners? Magnus: Yes. From a market perspective, it is up to the Magnus: agents to decide upon how the underlying The EC has established the concept of Local physical assets are being used; e.g. by letting EV Energy Communities (LEC), which in many batteries be applied for storage purposes for the aspects reflects the development of local energy system. An agent representing both a PV and EV systems and markets, such as FED. However, it is can decide on having an “internal balancing” not clear as of today how these LEC should be before deciding on what bids to submit to the interpreted or implemented in national market. This is up to the owners of the agents to legislation. There are a number of question marks decide. and challenges that need to be resolved before

15 this can be rolled out on a larger scale. Two of . Lack of social comparison and peer these challenges relates to the ownership and pressure/triggers. Pro-environmental operation of grids (concession) and the role of behaviour is often enhanced when there is a balance responsible parties in relation to visible product to display (such as a Tesla car aggregators. Regulating authorities in many or Powerwall battery) that sends a message different countries in Europe are currently to neighbours and peers. In the local market, looking into such aspects. Further, the developed trade is “invisible” to others and might system includes operation of an energy therefore not be considered interesting. exchange, which depending on country can be . And some examples of economic and subjected to different monitoring requirements financial barriers are: and practices. . The need for (sometimes joint) investments; . Lack of well-tested and robust business To upscale the system to a real world setting – models; we all know an Academic Campus is not the real . Lack of well-tested and robust models for world- what barriers would you expect distribution of risks and revenues among immediately? different market actors; . Lack of financial incentives to join the Maria: market and trade in the system; This is to a great extent depending on the . Low electricity prices/small price differences contextual conditions where the local energy (at least in some regions/countries. system is implemented, especially when it comes to regulations and legal barriers. Regulations for We know the Nordic countries are quite energy infrastructure and trade are not advanced in district heating system. Is there a harmonised throughout Europe yet. Apart from part in the design of immediate value in Europe? the rather complex regulatory/ legal aspects that might arise, one can also expect social and Magnus: financial barriers. The market design takes into account the presence of different energy carriers, but does Social barriers e.g. trends, norms and values are not specifically define heating and electricity. present on societal, community and individual From a Swedish perspective, district heating and levels. Some examples of social barriers that electricity is the most natural combination to might hinder actors to become active consider, but from a European perspective other participants of the local energy system and combinations such as gas and electricity might be market are: of greater interest. The market design would also allow such combinations. . Knowledge thresholds; . Lack of trust towards the local energy Maria: market (e.g. related to the markets’ liquidity, Further, as the market design facilitates a switch size, transparency or other); between energy carriers it could imply even . Insufficient (non-financial) incentives that greater environmental benefits on an EU level could stimulate Demand than in Sweden. Natural gas holds a relatively Response/flexibility in consumption; strong position as a fuel for energy production in

16 the EU and the implementation of a local energy energy. The implementation of several market for electricity and gas could increase the directives, regulations and common rules for the possibility to switch natural gas for other energy internal markets for electricity and gas is already carriers, thus decreasing the climate impact. in place.

It should also be noted that EU aims at an Energy markets that enable trade and integration integration of energy markets and has already of different energy carriers can support this taken steps towards a single European market for development from a local level.

8 Challenges It is worthwhile to have a look at the challenges introduction to future Journals in which shall encountered in the other UIA projects and the offer a closer look as to how the FED project FED project. The following table provides an addresses them: overview of the relevant issues, as an

TABLE 1: MAPPING FED AGAINST THE ESTABLISHED UIA IMPLEMENTATION CHALLENGES Challenge Level Observations As stated the FED project made up a consortium of partners that have a long working relation and synchronize in ambitions. Nevertheless it is extremely relevant here what Matti Mäkimattila, writes in his dissertation on systemic innovation (2014)3:

Organizations develop certain knowledge bases embedded in structures and individuals, and these are dynamic in nature. Resources in organizations are often further discussed in terms of dynamic capabilities4, mostly assumed to increase competence over time, but in dynamic contexts the direction can be also opposite, absolute or relative in a competitive environment. It is important to notice that certain path dependencies impact the interpretation of information5 and the alternative 1.Leadership choices available for organizations. This can also be observed from the perspectives for Low of network maturity and integration development as presented in the Theory section implementation of this dissertation – and the ability of centrally positioned organizations to orchestrate collaboration based on knowledge and network activities6 On a larger scale, this is also seen as regime and landscape level changes7.

Partners will need to maintain and ensure their ongoing leadership throughout project implementation. The interconnections that are there by legal nature such as, ownership, tenant, legal enforcer, monopolist supplier, maintainer, to name a few, may become stretched , notably when hard decisions will need to be made. The commitment to the sustainability plans and the specific local ecosystem around the science park is a notably strong asset in that respect. Public procurement is increasingly viewed as having important potential to drive 2.Public Low innovation. Despite this interest, often numerous barriers prevent the public sector procurement from acting as an intelligent and informed customer.

3 http://www.doria.fi/handle/10024/102205. 4 (Teece et al., 1997; Eisenhardt & Martin, 2000; Rothaermel & Hess,2007). 5 (Dixon, 1994). 6 (Powell & Grodal, 2005; Pfeffer & Salancik, 1978). 7 (Geels, 2002; 2004; 2005; Geels & Kemp, 2007; Geels & Schot, 2007).

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The combined knowledge in the consortium should help to solve the barriers related to processes, competences, procedures and relationships in the procurement and help to reap the benefits of innovation.

Since all investments will be made under normal regulation the typical public procurement challenges (timing, flexibility) will also have to be addressed by the project.

The integrated cross-departmental working is a challenge identified in many UIA projects but not necessarily in the FED project. This is merely the case because many 3.Integrated of the tasks & responsibilities of the –for example- landlord, of the tenant and of the energy supplier are legally assigned to the single organization rather than residing cross- Low departmental under one administration which could have been the case in earlier stages of working development. One may argue therefor that some of the challenges found under the leadership list will have similar characters as other projects identify under integrated cross-departmental working.

A participative approach has already been implemented in the FED project. However 4.Adopting a for smart grids to become mainstream project partners will need to find ways to participative Low include all consumers and producers alike. approach It is difficult enough to rate the renewable character of energy in one system but the mixing of various streams in multiple systems may sound nightmarish for those not so occupied with the material. The local input may be measured very well –for example from PV systems- but the national mix never has that granularity. Something different is that If the thermal inertia of a building is being used to supply heat to another 5. Monitoring High and evaluation building next door there is an argument to consider its residual heat, as well as an argument to consider the first building part of the heat infrastructure. It would be nice to see how different interpretations will be evaluated. The integration of different data if the FED system and their use and aggregation will notably be a strong focus point for the project.

Financial sustainability in this project is not negative to the normal. Where the project offers an opportunity is in higher efficiency which must long term enhance the 6. Financial Low financial sustainability of similar models. Different actors and real life investments as Sustainability well as the academic scrutinizing of the results should inform the project which parts enhance and which parts weaken its financial sustainability.

With up to 90% of the costs in office buildings connected to salaries and social insurances the argument for energy efficiency has not always been the most relevant for building owners and users.

However in the light of Paris Climate agreements and the ambitions to have CO2 neutral urban areas in 2050, the FED project that explores –for the first time- the combination of heat and electricity in one smart grid system is very certain to create interest. 7. Communicating Medi The capturing of that interest, be it from municipalities, universities, other building with target um owners, energy suppliers or even the private individuals owning small PV systems, or beneficiaries owning electric vehicles is must for the project, not to have been in vain. After all, one of the overarching goals of projects like the FED is to interact with partners that are doing the same but similar projects and explore the lessons learnt together.

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The upscaling of the work will require considerable effort on almost all fields the demonstration works in. For starters: the area is exempted from the law of concession for electricity distribution, providing the opportunity to test and validate a local energy market. The question is really under which legal frameworks in Europe these solutions will be replicable. Furthermore the ownership structure is transparent and not complex which is often not the case in larger districts.

However, one must realize that the energy transition is not going to be a race in which 8. Upscaling high one solution emerges and is followed. It is very much a try & error process in which many particular technologies and consortia will benefit from each other and form an (excuse the pun) energetic landscape that works in its specific context. The current partners have interests enough in the rest of the Nordics and the world to play a significant role in the upscaling of the end results and should really aim for a clear articulation of the specific local characteristics and their relative importance to the business offer.

9 Next steps As I board my flight I start wondering about the Possibly except for Ericssons work, I must ask next steps in the FED project. It is clear that to them next time. It is the system thinking and the design a system that even uses the thermal communications in the marketplace with the real inertia of buildings, you are going to need to energy producing assets and the real buying invest in equipment. There are also some pretty actors that make the project so innovative and decent investments on their way in a new CHP, in interesting. a thermal battery and of course in PV systems. I do not think the absorption chiller will make the So I make a couple of marks for my next visit: list but look forward to the system analysis of its . Where are these investments and how are relative value. they connected? . What is the rationale of the different Although innovations often struggle to get into investments from the system perspective? tendering procedures I believe in this case the . Which of the decisions have a local character partners are doing pretty well as the specificities and which parts should be applicable all over will be ‘state of the art’ no doubt, but as Europe? technologies not intrinsic innovative, hence not hard to tender. Zeno Winkels

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